Looking for a region that's growing, not mired in America's stagnation and relatively unaffected from the disarray in Europe? Heiner Skaliks, Portfolio Manager for the Strategic Latin America Fund, believes that region is Latin America and that investors looking for growth should take a good look at the opportunities there.
In a phone interview with Kapitall he discussed his opinions on the region's developing economy.
Skaliks says the Strategic Latin America Fund, based out of Bolivia, takes a hands-on approach using surrogates on the ground throughout the region who report back with the latest local trends. These agents foster "local strategic alliances and exchange ideas with country, industry, sector or strategic experts and specialists in the local market to interpret latest news which may, in turn, lead to additional opportunities." SLAF then tries to leverage this information in an opportunistic way to assess areas for growth.
Notable Stock Picks
In areas of higher growth, Skaliks focuses on investments in equities. In other places where growth is not going to be as robust, the fund relies on fixed income. Overall, regulators require that eighty percent of the funds total investments be from Latin American countries, and the firm uses the access that it has to smaller, local trading markets in countries like Peru and Colombia to provide clients with opportunities that U.S. firms are barred from trading in.
Among Skaliks current stocks of note is LATAM Airlines (LFL), the product of a recent merger between Chilean-based LAN Airlines and Brazilian-based TAM Airlines. He believes this is an example of the growth in "south-to-south" mergers and acquisitions, meaning companies from the region doing business with other regional companies rather than relying on American companies to grow their business, achieve economies of scale, and become more competitive.
One U.S. based equity that the SLAF's Portfolio Manager is bullish on is MetLife Inc. (MET). The insurance company is currently the investment fund's fifth largest holding, making up 4.32% of their total investments. The firm recently invested in the fund because they believes the stock is trading at an attractive price. Skaliks says MetLife serves as a proxy for the Dow Jones and the United States' stock market in general; perhaps indicating a bullish outlook on the market.
Companhia de Bebidas das Américas (ABV), more commonly known as AmBev, is a firm Skaliks says believes is here to stay following its purchases of Anheuser Busch and Grupo Modelo. Skaliks believes AmBev is a "great company with great management and great revenue." Room for growth will likely come from the established regions' consumption habits, which follow overall economic cycles. "When Americans decide to have two beers per week rather than one, that's when this company will really see some growth," said Skaliks.
Economic Development Expectations
Due to some recent political and economic developments in the region some countries within Latin America are more attractive to investors than others.
On the bullish side, Heiner Skaliks believes that Mexico is a country that will enter a period of prosperity, and because of this his firm is focusing its equity investments in that country. The first reason that Mexico may prove fertile for growth is because it has a rapidly expanding middle class that is going to soon need access to common middle class goods and services like housing and automobiles. The country's proximity to the United States is also a positive as corporations can easily expand. Thanks to the more favorable business climate many investors expect, that will be easier than ever.
Following the presidential election on July 1, the Institutional Revolutionary Party gained power. The party has a platform that places significant emphasis on the free market and putting in place a climate for growth, and many investors, including the Strategic Latin America Fund, are flocking to the country.
The climate is not as rosy around the entire region. Brazil is one country where Skaliks believes "the margin for growth for equities is limited." Therefore, he is focusing on investing in fixed income in Brazil rather than equities. He believes that because of the governments intervention and devaluation of currency they showed their concern for a "screeching halt rather than a soft landing."
The economy of Latin America is in an interesting place at the moment. While Heiner Skaliks does not discount the fact that natural resources play a significant role in the region, he believes that the region is well positioned for the future. When people think of energy resources, it is usually coal and oil that come to mind. These are plentiful in Latin America, but the region is not nearly as commodity dependent as it has been in the past.
Additionally, Skaliks believes the region is well adjusted for the energy developments that are to come. "Latin America might not be an interesting play for innovation but is for value and supply chain of energy," he said. This claim is backed up by the lithium deposits in Bolivia and the amount of sugar cane ethanol in Brazil.
Use the tools from Kapitall to compare changes in average analyst recommendations for Skaliks's notable stock picks:
Business Section: Investment Ideas
What advise does Skaliks have for investors? Besides the importance he places on diversification, he would say do not count Latin America short. According to Skaliks, the region composed of more than 550 million people is more politically and economically mature than it has ever been and he believes it will play a significant role in the world economy moving forward.
Beyond that, it is not nearly as exposed to the fluctuations in the global market as other areas of the world are but rather is integrated on a cross regional level. Investors continue to overlook this region at their own peril.
For more information on the Strategic Latin America Fund's investing strategy, and firms with the potential to benefit from Latin American trends, click here.
Written by Dan Connelly, Interview on July 20th.